Private equity (PE) interest in shipping has intensified in recent years, driven by attractive asset-backed returns, fleet renewal demands, and the sector’s growing alignment with infrastructure-style investment theses. Whether through direct vessel acquisitions, platform buyouts, or take-private transactions of listed shipping companies, PE investors are deploying capital across the maritime value chain at a pace not seen in previous cycles.
However, acquiring a vessel or a fleet is not like acquiring a conventional operating business. The asset moves. It crosses jurisdictions. It operates under international treaty regimes. It is subject to separate tax regimes and relief. And it carries risks that do not appear on a balance sheet and do not dissolve when ownership changes hands (with many liabilities attributed to the vessel itself). Sponsors who arrive with a standard M&A diligence playbook are likely to miss the exposures that matter most.
Diligence on the vessel: Beyond the balance sheet
- Classification status
An airworthiness certificate would generally be considered equivalent to a vessel’s classification society certification. Without such certification, the vessel cannot operate. As a result, a buyer of a vessel needs to determine if the vessel is currently classified. Additionally, the buyer will want to research the entire classification history of the vessel, including any outstanding classifications (conditions), overdue surveys, and/or changes between classification societies (which can indicate deferred maintenance or unresolved issues regarding the condition of the vessel). Inspection reports and Condition Assessment Program ratings should supplement the documentation related to classification. - Flag-state compliance
Where a vessel is flagged is crucial. Each flag state sets its own rules governing safety and crewing matters (as well as environmental concerns) applicable to that vessel. Due diligence must verify that all required statutory certifications are current and that the flag state itself has no restrictions or reputational issues that may impact the ability of the ship to operate/trade or obtain necessary insurance coverage. - Emissions compliance
As the International Maritime Organization continues to develop new policies (such as the Carbon Intensity Indicator framework) that shape charterer demand in real time, vessels that fail these standards will face increasing operational challenges, charterer objections, and, in some instances, outright exclusion from certain trades. Therefore, for a PE investor developing a long-term investment strategy based upon projected returns, the trajectory of the vessel under tightening emissions rules is as important as its current profitability. - Sanctions exposure
Sanctions regimes targeting Russian oil exports, Iranian/Venezuelan cargo, and certain vessel registries have significantly altered what constitutes responsible diligence in this industry. Screening only current owner and counterparty information against designated party lists is insufficient. Sanctions liability can be attached to a vessel based on its past actions regardless of when those actions occurred or who owned the vessel at that time. Therefore, due diligence must include reviewing automatic identification systems (AIS) data relating to the vessel’s entire trading history. Gaps in AIS transmission history represent a serious issue for both buyers and sellers alike. Specifically, “dark periods,” where a vessel’s location is unmonitored while at sea, are indicative of possible sanctions evasion activity (including ship-to-ship transfers of sanctioned goods away from ports and monitoring systems). Sellers wishing to avoid being deemed in breach of sanctions laws themselves must demonstrate that any dark period was simply coincidental. Moreover, a seller’s failure to disclose such activities during due diligence represents actionable negligence.
Therefore, it is apparent that sanctions-related screening in shipping M&A is more complex than running a basic KYC check against a watchlist. To properly address this challenge, you will need access to specialized maritime intelligence resources and AIS data providers. Further, your legal team will have to navigate sanctions laws in multiple jurisdictions while consulting the real-time data to generate an overall risk profile.
Diligence on the ownership: Unraveling the corporate web
Shipping companies commonly place individual vessels within single purpose entities (such as a Marshall Islands-flagged vessel being owned by a Marshall Islands corporation); these are typically layered beneath intermediate holding companies and finally at the top of the hierarchy sits ultimate ownership in another jurisdiction that is geographically removed from where the vessels operate. This corporate structure makes sense from a commercial perspective: It segregates liability for each vessel, facilitates compliance with flag-state requirements, and streamlines financing for each vessel individually. However, this structure complicates the process of identifying all owners/entities that possess some degree of control or obligation related to the vessel.
Additionally, buyers must carefully review any agreements entered into by ship managers (third-party technical/commercial operators) who contractually have rights to terminate their agreements with respect to each vessel and potentially undermine future returns with pre-baked management fee variations, which are non-renegotiable at closing. Such fee variations may chronically erode the net cashflow returns that underpin the valuation rationale for most shipping M&A transactions. Furthermore, buyers should also closely examine intercompany charter agreements executed between affiliated entities at below market rates to accurately assess each fleet’s true earnings profile.
Finally, buyers must also investigate the maritime lien rights associated with each vessel being acquired. Maritime liens arise in connection with various types of obligations, such as unpaid wages owed to seafarers, salvage awards, and tort claims filed against the vessel, and attach directly to the vessel itself rather than to the corporate owner of the vessel. Therefore, even though a buyer may be able to obtain an acquisition agreement free of any liens or other corporate encumbrances, buyers may still find themselves owning a vessel with maritime liens attached to it because of prior claims. Thus, lien searches and reviews of pending Admiralty Court proceedings are non-discretionary.
Creating a transaction plan tailored for the specifics of shipping assets
The opportunity set in shipping is real and growing. Sponsors who get due diligence right will close with greater confidence, price risk more accurately, and build platforms positioned to perform in a market where the difference between a well-diligenced acquisition and a poorly diligenced one can be measured not just in returns, but in regulatory exposure and reputational consequences.
The use of warranty and indemnity insurance for shipping M&A transactions is well established and further drives the upside of undertaking a tailored due diligence process. Given the diversification of investors within the sector in recent years, W&I insurance is widely used to provide coverage for the warranties and tax covenant contained in the purchase agreement. Insurers provide tailored policy coverage on shipping-specific diligence items, often extending to known risk insurance for an additional premium. It is important to approach diligence with W&I insurance in mind (where contemplated) to avoid having to address material coverage gaps at the back end of negotiations.
Co-ownership and joint ventures are regularly deployed within the shipping M&A market. Any co-investment will also require tailored drafting of joint venture terms rather than using a typical joint venture structure for a standard operational business or other special purpose vehicle ownership structure. Industry-specific matters – interplay with management agreements, existing charter agreements, reserved matters, deadlock resolution concerning vessel-specific items, and how to sell and/or otherwise split a pool of vessels in the event of a forced exit – are critical, together with interplay with any relevant asset financing arrangements and the outputs of the shipping-focused due diligence process.